Good morning and welcome to the next session of Oppenheimer's 34th Annual Healthcare Conference. I'm Seamus Contorno from the MedTech Research Team. Today we have a fireside chat with Pat Mackin, CEO, and Lance Berry, CFO, of Artivion. So with that, you know, let's kind of get started. Pat, so one of the things that can be emphasized enough, that can't be emphasized enough, is how Artivion hasn't missed a beat and consistently outperformed, even during COVID. So what would you say are the key levers that have allowed you to, you know, be steady-eddy, and how sustainable are those competitive advantages?
Yeah, hey, thanks, Seamus, and you know, glad to be here. You know, what I what I would say is that, you know, we're fortunate in that we've got a, a full portfolio of products. If for those who are on the web, who can see the slides, you know, we created a, an aortic franchise, that where we call on cardiac and vascular surgeons. And one of the things that you'll see that is consistent across our portfolio, whether you're talking about BioGlue or On-X or SG, or our AMDS device, our E-nside device, these are highly proprietary, in many cases patented, with excellent competitive clinical data and a high source of competitive advantage. I just—I just highlight kind of three, three technologies here. So first is our SG. This is a, a pulmonary valve that's the only decellularized valve on the marketplace.
We have a, you know, dominant market share position, very good pricing and margin, procedures growing rapidly, and our sales force is well positioned to deliver on this. On-X, you know, we've grown that business double digits over the last five-seven years, and we just released our post-approval data for the On-X trial. In 510 valves, this data was presented back in November. We showed an 85% reduction in major bleeding. The five-year data on this will be coming out in a couple of months at AATS. We continue to take share in this segment and have done research that shows we're going to continue to do the same. And then the last is, these are just three examples, is the recent PERSEVERE data, which we'll get into later.
But the fact that we are showing a 72% reduction in mortality, 52% reduction in major adverse events, once again, a highly proprietary, patented technology, with great clinical data all backed up by a strong sales force. I think the combination of those things makes us very confident that we've got a, you know, a winning portfolio for a long time to come.
Mm-hmm. Seems like a, you know, an engine that just keeps running, so to speak. And, you know, kind of I want to touch back on, you know, the On-x franchise and whatnot. PROACT Xa, you know, we also, what happened and, you know, sad to say with that, and PROACT Mitral also left something else, you know, to kind of be desired. Was there any impact that you saw on the On-x franchise? You know, did it change any market shares within the US, OUS? And then, you know, looking forward to the actual On-x business that is still, still kind of going and chugging along, you know, when does the law of large numbers come into play?
Yeah, so I mean, I think, you know, the On-x franchise, I mean, we grew that business, you know, very strongly last year. You know, we've seen double-digit growth, as I've mentioned, for, I think, seven years now. To put it in the macro sense, you know, it's about a $250 million mechanical valve market. We've got about 30% market share of that. We did, I think, $68-$69 million last year. We've got opportunity internationally. We've got lower shares internationally. So we've got a disproportion of that shares in the US. So we probably do about 55% share in the US, and then a much lower share outside the US, which kind of dovetails with our, you know, international strategy of expanding in Asia and Latin America.
So, given this data that's out and the data that's going to be coming out in May, I mean, we feel pretty confident that the On-X story still has a lot of room to go.
Okay. Good to.
Hey, Seamus. Seamus, it's Suraj. Sorry, sorry, guys, I'm having technical difficulties, but I'm back on.
Welcome.
So Pat, my apologies. So Pat, obviously, PROACT Mitral, right, that was one of the key things that was talked about, some time back. But at least the raw numbers, it seems like y'all haven't missed a beat. Walk us through it. Would it be that if the data was spectacular, y'all would have seen a step change? It's sort of asymmetric in a way in terms of PROACT Mitral. How should we think about that?
Yeah, I mean, the data is, as we've talked before, I mean, if you look at the mechanical valve guideline data, is not very good. And if you look at the amount of data that's been presented, and we just had another presentation at STS in January, the mitral data is actually excellent. It's the largest body of data on a mechanical mitral valve that's ever been done, and it shows very strong results, and, you know, we saw 20% growth in that business in 2023. So, you know, to your point, if, you know, if we had hit the statistical endpoint and got it approved, would it be growing? Probably yes, but the fact of the matter is it's a great valve with great data, and it's doing very well.
Pat, you and I have talked about this many times, about this whole SAVR-TAVR debate. Obviously, you know, more recently, it seems like at least in low-risk, low-risk TAVR, you know, growth has somewhat not met expectations. And we keep hearing about insurance companies denying coverage for less than 65 years of age, even though patients are asking. How do you see the latest debate? You know, what should we be paying attention to in terms of mechanical or bioprosthetic versus TAVR?
Yeah, so it's, you know, for those who can see the slide, this is one that, you know, we get this question a lot. And I think this slide that's up actually does a great job in kind of laying out the aortic market, right, which is, you know, if depending on your age—and if you look at the slide, it basically buckets patients by age group—and depending on your age, it kind of determines what you're going to get from a valve type, right? So for example, if you're, you know, a pediatric is going to get our pulmonary valve and a Ross procedure. And that segment, as you know, is growing very fast in the adults up to age 50-55. You know, On-X, you know, we typically have that from kind of the 30s up to 65 years old.
So really, what's interesting is, you know, Lance and I have talked about this. I mean, we literally are the market share leader in aortic valves and patients under 65 with the On-X franchise and our pulmonary valve franchise. Where you really start to see the kind of bifurcation is when you get over 65, and that's kind of the bioprosthetic kind of SAVR-TAVR battle between tissue valves and TAVR valves. So, you know, to me, this is, as you've mentioned, I mean, the guidelines for TAVR are you're not supposed to use TAVR under 65. People do it. The fastest growing procedure in the STS database is TAVR explant.
I just think for patients who have a life expectancy, you know, if you're 65 years old with a, you know, 20-year life expectancy, you know, probably not a great option to go to a TAVR first when you can have a much more robust procedure with a mechanical valve. I think the other thing that's actually very interesting on this bioprosthetic versus mechanical, the data I'm showing, there was a big publication in JACC back in last summer out of a 7,000-patient trial out of Sweden that basically showed that there was a survival benefit in ages 50-69-year-olds using a mechanical valve versus a tissue valve. These are big numbers, right? This is like 3,000 mechanical valves versus almost 4,000 tissue valves. And they're all Edwards Paramount Group. So showing an actual mortality benefit in the ages between, you know, 50 and 70 with a mechanical valve.
The data that's up that's right now shows that, you know, these valves actually had a 15% greater survival at 15 years if you used a mechanical valve. So I think there's a, you know, there's a lot of discussion about kind of the ages and which technology. But clearly, the mechanical valve is performing extremely well. And looking at the Swedish data, in patients under 60 and even under 70 years old, there's a mortality benefit. So, you know, to me, that's actually very important. And it goes back to, you know, if you look at the data, this technology is performing extremely well.
Pat, in terms of, you know, obviously, the cadence of performance for Artivion or CryoLife in the past years, like Seamus started out, you know, y'all haven't missed a beat, right? Is this something unique to the sales force or the sales team? You know, how the sales structure is, whether it's to On-x, to stent grafts, what is so unique in your view that, at least from what we can tell from the numbers, that there's something different that y'all haven't even really missed a beat? I would say I would contend three, four years going.
Yeah, I think it's, you know, there's a few things, right? So in a way that one of the things I love in a business is focus. And from the day I got here, I've worked to, you know, have this team focused on an anatomy, right, which is the aorta, and building and assembling a group of technologies that focus on the aorta, but then a channel that focuses on two customers, cardiac surgeons and vascular surgeons. And the more they do it, the better they get. And it just, if you look at just North America as an example, you know, we've got 63 kind of feet on the street here in North America. And they sell BioGlue to aortic surgeons. They sell On-X valves to aortic surgeons. They sell the SynerGraft valve to aortic surgeons. Once AMDS gets approved, they'll sell AMDS to aortic surgeons.
It just feeds on itself. They become more clinically astute. We have a very strong commercial team in the U.S. and Europe. We're building out in Asia-Pacific and Latin America. But, you know, we've got 185 direct reps around the world calling on cardiac and vascular surgeons with a very unique aortic portfolio. And I think it's just the more we bring those technologies in, the stronger they get, and we keep expanding, albeit we don't have to do it at the same rate as you have to in other businesses. So it's highly leverageable as well.
Pat, on the last, I would contend two calls, maybe three earnings calls. You know, your excitement level about PERSEVERE data and AMDS, it's quite palpable, right? Help us understand, you know, just, you know, is it more that we have to wait for the one-year data before this engine gets revved up? How should we think about the $150 million opportunity you laid out? I believe it was on the last call. You know, and more specifically also, if you could touch on the cross-selling, could it help in cross-selling also?
Yeah, so I've got the data up. So this is the U.S. FDA IDE trial called PERSEVERE. This is a 30-day data that was presented at STS about six weeks ago. And for those who can see on the screen, right, the primary endpoint for the FDA trial was the reference cohort had a 58% of patients had one major adverse event, either patients died, had a stroke, required dialysis, had an infarct. And we came in, we had a 52% reduction down to 28%. We also saw a statistically significant difference in mortality from 35% down to less than 10%, which is really unheard of. I mean, it's an amazing for a super sick patient population.
I think the other one we've talked about, and without getting too technical, there's a concept called DANE, distal anastomotic entry tear, which is where they basically sew a graft to the aorta and you get a leak that causes reoperations and death. It happens up to 45% of the time in these cases. We've seen none in any of our trials. This is a lifesaving, life-changing technology. So to answer your question, right, we have to do a one-year follow-up, which would be in November of this year, submit the PMA, and then get approval in the second half sometime of 2025. We also expect to see benefit of this technology in the markets where it's currently approved, right? So we're approved in Europe, Canada, many markets in Asia, Latin America.
So this data, you know, this was done in the top 25 centers in the U.S. And those surgeons are all going to be out speaking at the big aortic meeting. So as this data gets disseminated, you know, we expect to see further uptake while we're waiting for the PMA and the uptake here in the U.S. As far as your second question, the cross-selling, I mean, there's a slide up. It was really the vision of when I came here. You know, when I started with the company, it was basically BioGlue and tissue. And, you know, we put the cardiac, the aortic surgeon in the middle of this. This is just the kind of cardiac surgery example. But now our reps sell the On-X valve. Our reps are going to be selling AMDS when that gets approved. We're about to start the Arcevo LSA trial.
You know, the NEXUS trial is ongoing. So really, the cross-selling, you know, we're going to train, you know, several thousand surgeons on AMDS. And we're also going to talk to them about BioGlue. We're going to talk to them about On-X. And I just think the brand of Artivion and what it represents in differentiated aortic technology to our customers is going to be just repeated time and time again as we move forward.
Pat, maybe I'm getting my wires crossed. Can AMDS be used on a compassionate basis before PMA approval, just given, you know, the delta in the outcomes?
Yeah, so we do have, and this is a very normal process, right? So once you finish enrollment in the IDE trial, we did submit to the FDA the ability to do continued access. So we have a number of our IDE centers that actually are still able to use AMDS in what's called continued access protocol. And basically, the FDA will parcel out, you know, a certain number of cases that you can do. And then if you hit that, then you have to resubmit for more. So we do have that in a number of our IDE centers.
Got it. Fair enough. And Pat, I'll let you or Lance take any of these questions. You know, obviously, the OUS also has been relatively strong for you guys. So, you know, as we think about the roughly equal split, fast forward 24, 36 months, how would you characterize? Is it more U.S.-dominated given AMDS acceptance in the U.S.? How should we think about the contribution, at least geographically, let's say 24, 36 months out? How are you thinking about it?
Yeah, maybe Lance, I'll let Lance take that one.
Yeah, I'd say we're looking at both right now, the U.S. and international are both growing well. Parts of international, you know, Asia-Pacific, Latin America, obviously growing a little bit faster than the overall. But definitely, as you think about an AMDS approval in the U.S. and the size of that opportunity, likely would drive, you know, outsize growth in the U.S. and start to change that mix some once you get AMDS approved. And then, you know, there's a pipeline behind that too of products coming to the U.S. So I do think if you look further out, you could see the U.S. being a faster-growing portion and potentially also drive some mixed benefit and gross margin from that as well.
So Lance, piggybacking on that, in terms of the sales force, right, you guys are direct in a number of OUS countries. And maybe this is a wrong use of the word, but how would you characterize any efficiency gap, either in the number of feet on the ground, annual productivity between US and OUS? How do you see it over the next, let's say, 12-24 months?
Yeah, I'll take the first stab at that. I mean, to me, one of the great things about, and Lance can comment because, you know, he came from the orthopedic world, which is heavily rep intensive on case coverage. And that's not the case in kind of our in the aortic field. You know, we do, on the stent graft side, we have a lot of required case coverage for the higher tech products. But on the cardiac surgery side, I think the AMDS is a perfect case study, right? Which is we've got, you know, 63 feet on the street in the U.S. We can launch AMDS without adding a single new rep. So the answer to your question is it's highly leverageable.
As far as getting more out of them today, I think it's more as we can add product to their bag and they can actually handle it and do a nice job because of their relationships and their training and their expertise that you typically can't, you don't typically see that. And maybe, Lance, you can comment as well.
Yeah, I mean, I would say that's one of, you know, me being new to cardiovascular, one of the, I would say, one of the most pleasant surprises is how leverageable the sales force is. We still have opportunity for expansion in Asia-Pacific specifically. But the rest of the sales force is pretty scaled up. It's mature and tenured people that really we just need to give them more products.
Pat, one of the things that I know you and I have talked about in the past quite a bit is, you know, going into double-digit growth. Obviously, the FY2024 guide is healthy. I'm curious right now, do you see we are on a sustainable path for, you know, pretty reasonable double-digit growth, you know, in the teens or wherever? How would you characterize this landscape shaping up beyond FY2024?
Yeah, I mean, we're not obviously going to give guidance for 2025. I mean, 2024, we've said we're going to grow, you know, 8%-12%. We grew 12% last year. We obviously, you know, work hard, as you've commented, to be at the upper end of that range. But clearly, when AMDS gets approved, that's a significant opportunity for the company. And, you know, it's going to require training and it's going to require going through the value analysis committee, which you guys are all familiar with. But that's a significant opportunity and, you know, clearly would, you know, should accelerate the growth.
Got it. Fair enough. And Lance, the new term loan, you know, has the ability you guys can close the convertible at your discretion. As you all see it, obviously, the coupon rate is higher, but walk us through the game plan for the debt structure, I would say short-term and medium-term.
Yeah, we're still evaluating certainly the long-term how we want that to be. The big thing was to get a comprehensive solution for the balance sheet as it was, you know, kind of at the end of the year, which we did with the new debt. We replaced the term loan, which needed to be done. And then we have the capacity, as you said, to take out the convert whenever we want. I mean, it matures next summer. So we can let it ride to maturity if we want or if we prefer, we can take it out sooner. As you pointed out, there is quite a bit difference in cash interest between the convert and the term loan. So at the moment, we're still evaluating and are happy to pay the lower cash interest until we, you know, can land on a firm decision on timing.
Got it. Fair enough. And Pat, let me wrap it up with two questions for you. Obviously, when you came in, you had a vision, you know, and you put your imprint very quickly in terms of acquisitions. How should we think about, let's say, for the next two years, the current portfolio is solid enough, obviously? Do you still think about acquisitions or you would say, "Nah, just given the leverage and, you know, we'd rather do some housekeeping and capitalize on what we have?" And the second question that I would have for you is, you know, you've been there almost seven, a little over seven years. When you came in versus now, how would you characterize the residual inertia within the company?
Yeah, so, you know, I'll take the first one there, the M&A. I mean, clearly, you know, when you set a strategy and you, you know, build a company and, you know, transform it from what it was to what you want it to be, you don't always have a, you know, the timing of your deals doesn't always line up with how you want it to. And it's fine the way it happened. I mean, we ended up doing, you know, 4 deals right in a row. And we are very happy with our portfolio. We've got, you know, 5 PMAs in our pipeline that is $1 billion worth of opportunity. And it isn't the usual $1 billion of opportunity with, you know, seven competitors in, you know, cut-through at markets. These are highly differentiated, high-priced, high-margin that go through our existing sales force.
So, you know, we are not planning on doing any M&A in the next, I would say, next three years. We're going to keep our powder dry and de-lever. As far as your second question, I mean, you know, you know, changing a company in the public eye is always, you know, a lot of fun. You know, we divested when I got here. We divested all of our non-strategic aortic assets. You know, we sold Hemisphere to Merritt. We sold PerClot to Baxter. You just mentioned, you know, we did three transactions. We did On-x, JOTEC, and Osiris back to back one year after another, as well as the Endospan deal. You know, we've got a pipeline of five PMAs worth $1 billion. We've got a global channel of 185 and expanding. We're growing double digits. We're increasing our profit in the 30% range and we're generating cash.
So what I would say, my parting message would be, people have even begun to see what we can do. Because of all the stuff we acquired, the very first device to come to the U.S. market is AMDS. And a year after that, it goes to Japan. And a year after that, we get the next technology in. So this is a foundation that has set up an aortic company that we can launch products off through our existing channels. And that's where you really start to see the power of this company realizing its potential.
Pat, I'll end it with this. I remember the same level of enthusiasm. You and I talked a million years ago about On-x. And I can sense the same thing on AMDS. So it's going to be an exciting ride and you guys are on a roll. Congrats on all the progress. Thank you so much for taking the time and please accept my apologies for this technical snag on my side.
No problem. And thanks for having us, Suraj and Seamus.
Thanks.